Empirical tests to discern the dynamic causal chain in macroeconomic activity: new evidence from Thailand and Malaysia based on a multivariate cointegration/vector error-correction modeling approach
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The primary aim of this paper is to make an initial attempt to conduct empirical tests in order to discern the dynamic causal chain-in the Granger (temporal) sense rather than in the structural sense-among real output, money, interest rate, inflation, and the exchange rate in the context of two small Southeast Asian developing economies, such as Thailand and Malaysia. The methodology employed uses various unit root tests and Johansen's cointegration test followed by vector error-correction modeling, variance decompositions, and impulse response functions in order to capture both the within-sample and out-of-sample Granger-causal chain among macroeconomic activity. Given the relatively stable macroeconomic environment in these two growth-oriented economies, the results, quite in line with our expectations, tend to suggest that in the Granger-causality sense, money supply (particularly MI) appears to have played the leading role of a policy variable being the most exogenous of all, and the other variables including output, rate of interest, exchange rate, and prices appear to have borne most of the brunt of short-run adjustment endogenously in different proportions in order to re-establish the long-run equilibrium.
Dynamic casual change , Granger temporal causalilty , Thailand , Malaysia , Economic implications
Mohammed Masih, Abul Mansur & Masih, Rumi. (1996). Empirical tests to discern the dynamic causal chain in macroeconomic activity: new evidence from Thailand and Malaysia based on a multivariate cointegration/vector error-correction modeling approach. Journal of Policy Modeling, 18 (5), pp. 531-560.
Elsevier Science Inc.